According to Coface's main scenario, the rebound should occur in the third quarter at the very earliest, and will be driven by reconstruction efforts and renewed consumer confidence.

Euro zone growth overshadowed by the sovereign crisis
The euro zone has been severely hit by the sovereign crisis and is expected to grow by 1.3% in 2011 compared to 1.8% in 2010. The ratings for most European countries have been left unchanged, with the exception of Portugal (downgraded to A4) and Cyprus, heavily exposed to Greek debt (downgraded to A3). Portugal, which is caught up in a political crisis and has just asked the EU for financial aid, will remain in recession this year (-1.3%). Portuguese companies, with a low cash flow rate, will still find it hard to obtain credit.

Outside the euro zone, in the UK (A3 positive watch removed), drastic austerity measures and high inflation will dampen consumer confidence. Manufacturing firms will face shrinking margins due to rising input costs.

Countries in North Africa and the Middle East placed under negative watch
Political uncertainty in the Middle East/North Africa region could impact the activity and exacerbate the imbalances in public finances and depress currency earnings. Coface has decided to put Tunisia (A4) and Egypt (B) under negative watch, as the political transition that these countries are going through makes them fragile in the short term. Syria's rating (C) has also been put on negative watch due to the growing wave of political protest in an inadequate business environment. Libya, which is expected to see a very sharp decline in activity of at least 15%, has been downgraded to D.

The rise of oil prices will impact activity worldwide
Coface expects oil prices to flare up significantly, driven by socio-political tensions in oil-exporting countries and reconstruction efforts in Japan, the world's third-largest oil importer. In 2011, Coface expects Brent oil prices to rise by 25% compared with 2010 at $100 per barrel. This will knock 0.1 to 0.2 points off GDP growth in the major oil importing countries: USA (2.5% growth in 2011), Germany (2.3%), UK (1%) and South Korea (3.5%).

In this view, Coface has revised down its world growth forecast from 3.4% to 3.2% (1.7% for the advanced countries and 5.6% for the emerging countries), compared with 4.2% in 2010. These forecasts also factor in the impact of the euro zone's sovereign debt protracted crisis and the expected slowdown in emerging economies, especially Asian countries, which have introduced measures to curb economic overheating.

“After a year of marked recovery, we are now seeing an increase in global risk due to political upheavals and the natural disasters occurring in the first quarter. The economic downturn is also affecting emerging countries. The recovery continues but at a slower pace,” commented Yves Zlotowski, Chief Economist at Coface.

Country Ratings Updates
Coface country ratings indicate the average level of risk presented by a country's companies on their commercial transactions. The ratings do not assess sovereign debt.

Region Country Dec. 2010 Rating New Rating

Europe Cyprus A2 (negative watch) A3

Portugal A3 (negative watch) A4

United
Kingdom A3 (positive watch) A3

Asia Japan A1 A1 (negative watch)

Vietnam B (negative watch) C

Middle
East Bahrain A3 A4

Egypt B B (negative watch)

Libya C D

Syria C C (negative watch)

Tunisia A4 A4 (negative watch)

About Coface
Coface's mission is to facilitate global business-to-business trade by offering its 135,000 customers solutions to fully or partly outsource trade relationship management and to finance and protect their receivables: credit insurance, factoring, business information and receivables management. Due to the worldwide local service delivered by 6,600 staff in 65 countries, over 45% of the world's 500 largest corporate groups are already customers of Coface. Coface is a subsidiary of Natixis whose share capital (Tier 1) was 16.8 billion Euros at the end of December 2010. Visit us at www.coface.com